Citizens to Propose Risk Load But Not a New Business Rate
The Board of Governors of Citizens Property Insurance Corporation wresteld with the difficult issue of the residual market’s rate levels at its board and committee meetings last week. Citizens’ rates receive a lot of attention in the media, and admittedly present a unique challenge for this state. Citizens has a substantial share of the market, but even so more people are not insured by Citizens than are insured by it. Inadequacies in its rates therefore mean that the majority of Floridians are subsidizing the minority and Floridians are exposed to potentially massive assessments. Inadequate rates in Citizens also stiffle the private market, which in some areas cannot compete with a government entity’s charging below-market rates. At the same time, no policyholder wants to see abrupt rate increases especially as the economy remains sluggish.
Leading up to the meetings, the board consider implementing actuarially sound rates for new business, or at least something closer to actuarially sound rates. The benefit, of course, is that even while Citizens is constrained by law as to what it can charge existing policyholders, at least it can begin to alleviate the problem by not welcoming an ever-increasing number of policyholders at inadequate rates. Ultimately, however, the board decided not to pursue this approach in favor of adding a risk load to its rates. Citizens has proposed a risk load in the past but the Office of Insurance Regulation has not been receptive to it. Citizens has authority to propose its rates, but the OIR has final ratemaking authority for Citizens. Despite prior rate approvals that did not include a risk load, Citizens officials believe the OIR might consider the suggestion more favorably in Citizens’ next filing.
In addition to proposing a risk load in the rates, Citizens also will seek approval a phase-in plan to raise sinkhole rates toward their indicated amount. The sinkhole portions of the rates are not subject to the legislative cap (glide path) that applies to policyholder premiums.
Even with the risk load, Citizens’ rate levels continue to be a concern if Florida wants a healthy private market. Several insurers have made recent rate filings seeking changes in excess of the 15 percent threshold for which a public hearing is required. If this is any indication of the continuing rate need in the private market, Citizens efforts to increase its rates by a little over 10 percent will be more than offset by rate changes in the private market, and Citizens’ rate disparity will remain in place or even grow. This in turn will continue to create problems for a state hoping to reduce the size of its residual market.